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Private student loans in January 2023

Private student loans can help make ends meet while pursuing higher education. They should be a last resort, after exhausting all other financial aid and maximizing your federal student loan allotment.

While you can use a private student loan for a variety of degree programs and situations, it’s wise to limit your borrowing. Since they’re credit-based, only especially creditworthy applicants secure low APR offers. Private student loans also carry fewer protections than federal loans.

Keep in mind each private student loan provider has its own set of terms, rates and eligibility requirements that vary, unlike a typical federal loan.

How private student loans compare to federal student loans

Private student loansFederal student loans
Credit check

  A credit check is part of the application process

  No credit check required

Cosigner

  9 or 10 loans for undergraduates include a cosigner, though not all lenders require applying with one

  Not always required, though an "endorser" could be needed for parent or grad PLUS loans

Interest ratesFixed and variable APRs (depending on your creditworthiness)Fixed rates (plus origination fees)
Annual borrowing limitUp to 100% of cost of attendance$5,500 to $12,500 (for undergraduates)
Repayment flexibilityIn-school deferment and short-term economic hardship forbearance could be available

  • Change repayment plans at any time
  • Variety of deferment and forbearance options
  • Forgiveness programs

      Not usually offered by lenders, though state and employer-run loan repayment assistance programs could be helpful

      An extensive menu of federal student loan forgiveness programs are available, plus additional ways to discharge your debt

    Private student loans are issued by private financial institutions. Interest rates differ from one lender to another, and you usually have a choice between a fixed or variable rate. Before approving you for a private student loan, private lenders look at your financial credentials, including your credit. If you can’t qualify on your own, you might have to apply with a cosigner.

    Federal student loans, on the other hand, are issued by the Department of Education. They come with a fixed interest rate that is set by Congress each year, and you won’t need to pass a credit check to qualify for most federal student loans. Federal loans are also eligible for a variety of repayment plans, such as income-driven repayment. They may also be eligible for federal loan forgiveness programs.

    Rates FixedVariable
    Federal*Undergraduate4.99%N/A
    Graduate6.54%N/A
    PLUS (grads, parents)7.54%N/A
    Private**2.99% to 14.96%3.58% to 14.96%

    *For loans borrowed between July 1, 2022 and July 1, 2023
    **Range from LendingTree marketplace lenders, as of January 11, 2023

    Private student loans also provide borrowers with a greater degree of choice. Instead of being assigned a fixed-rate federal loan to be repaid over a 10-year term, you might opt for a variable rate and a shorter or longer repayment plan.

    Private education debt comes with a higher borrowing limit, too, allowing you to cover any gaps in your school’s cost of attendance. With that said, it’s wise to only borrow what you need — and what you can afford to repay. Estimate your potential monthly dues using today’s rates and a student loan repayment calculator.

    How to maximize federal financial aid

    Because federal student loans carry such wide-ranging repayment flexibility, it’s generally recommended to max out your federal loan allotment before resorting to a private student loan.

    The Free Application for Federal Student Aid (FAFSA) is the gateway to federal loans and other aid programs. After completing the FAFSA, you’ll be eligible to accept loans offered by your school — but only up to the limit.

    Private student loan amounts

    Almost all undergraduate students will need a cosigner (usually a parent) to qualify. Once you qualify, you can typically borrow as much as you need to pay for school.

    Like with PLUS loans, private lenders will usually subtract any financial aid you already received before covering your remaining cost of attendance.

    What can student loans be used for?

    Student Loan Do’s

    • Tuition and fees
    • Room and board
    • Textbooks
    • A computer
    • Supplies and equipment necessary for study
    • Transportation to and from school
    • Childcare expenses

    Student Loan Don’ts

    • Travel
    • Clothes
    • Eating out
    • Down payment on a home
    • Business expenses

    Like federal loans, private student loans can be applied toward education-related expenses, including (but not limited to) tuition and school fees. You might also use private loan money to help cover secondary but significant expenses.

    Drawbacks of private student loans

    • No federal subsidies (i.e. subsidized loans)
    • Risk of variable interest rates rising
    • Burden placed on cosigners
    • Far fewer hardship protections than federal loans offer
    • No national loan forgiveness programs
    • Quicker trigger to delinquency and default if you fall behind on payments
    • Not necessarily discharged upon the borrower’s disability or death

    Private student loans can benefit borrowers with strong credit histories or with cosigners who are especially creditworthy. If you fall into this category, you might net a lower interest rate from a bank than you could from the federal government. You might also prefer private student loans for their exclusive options, such as variable rates.

    On the other hand, private loans are riskier propositions for borrowers, regardless of their credit strength. For instance, you might see your initial low variable rate rise with market conditions, then find that private loans provide a fraction of the repayment protections included with federal loans. Income-driven repayment, for example, is seldom available from private lenders.

    How to find private student loans

    The FAFSA is the gateway toward federal loans, but finding a private student loan might take a little more legwork. To start your research…

    • Talk to your school’s financial aid office about its potential list of approved lenders
    • Ask family members, friends and classmates for lender recommendations
    • Utilize free resources like LendingTree to view lender reviews and details

    Along the way, confirm that your preferred loan suits your purposes and that the lender would be approved by your school. It’s your school that will have final say in certifying your loan.

    How to compare private student loans

    Before taking out a private student loan, compare offers from a few different lenders. Many will let you confirm your eligibility and check your rates online without any effect on your credit score. By shopping around, you can find the best loan for you, reducing your long-term costs of borrowing.

    The following factors can help you make apples-to-apples comparisons between lenders:

    • Fixed and variable APRs, which are the interest rates when accounting for fees
    • Rate discounts
    • Fees for application, origination and prepayment
    • In-school repayment options
    • Choice of repayment terms
    • Cosigner release policy
    • Guaranteed protections, such as economic hardship forbearance
    • Other perks, such as credit score tracking or career coaching
    • Lender ratings and customer service track records

    How to get a private student loan

    1. Shop for private student loans

    • Check interest rates and terms online and with your local financial institutions
    • Consider finding a cosigner to get a shot at better rates
    • Weigh secondary features, such as unemployment protections or special discounts
    • Test-drive the customer service teams of your potential lenders

    2. Choose a loan and apply

    • If you prequalify, you will still need to formally apply
    • Supply personal, financial information for yourself and your cosigner (if you have one)
    • You may be asked to select a fixed or variable interest rate and the length of loan term
    • Your lender will work with your school to certify the loan amount
    • The funds will be disbursed, ideally, before the start of your next academic term

    3. Don’t forget about next year

    • Start the financial aid process early for your next year of school
    • Apply for “gift aid” such as scholarships and grants to lessen future borrowing
    • Some private lenders offer multi-year approval to streamline ensuing applications

    Calculate your student loan payment

    Frequently asked questions

    To qualify for a private loan, you’ll need to attend an eligible school, as well as meet any age, education or citizenship requirements. You’ll also need to meet a lender’s criteria for credit and income, or apply with a cosigner who does.

     

    Many lenders let you check your rates with an online prequalification that won’t impact your credit (as opposed to a more in-depth hard credit inquiry). Compare offers from a few different lenders before choosing one, so you can find the lowest rate for your private student loan.

     

    Information needed to get a private student loan

    • Credit history
    • Valid ID
    • Social Security number
    • Employment and income verification
    • Tax documents
    • Bank account and asset details
    • Debt or payment obligations

    Your cosigner, if you have one, will also be asked for this information.

    Most private lenders require a minimum credit score before approving you for a private student loan. If you have bad credit, you can boost your chances of qualifying by applying with a cosigner. Even if you can qualify on your own, adding a creditworthy cosigner to your application could help you get better rates.

     

    Note that your cosigner will be equally responsible for the loan, and their credit will be impacted if your loan falls into delinquency or default. Some lenders may allow you to release your cosigner from your loan after a certain period of on-time payments.

     

    With or without a cosigner, there are student loans for bad credit.

    Historically, about 9 out of 10 private student loans are borrowed with cosigners — a creditworthy individual who agrees to repay the debt if you, as the primary borrower, fall behind. That’s because teens and 20-somethings often don’t have the thick credit file required to meet the underwriting standards of banks, credit unions and online-only lenders.

     

    Even if you’re a rare case of a student who could qualify on your own, attaching a cosigner to your application could score you a lower interest rate. Just ensure you and your cosigner understand the legal obligations of repayment before deciding to team up.

     

    And if you prefer to go it alone, check out student loans without cosigner requirements.

    Each lender sets its own loan minimum and maximum borrowing amounts. Just because you can borrow up to your remaining cost of attendance, however, doesn’t mean that you should.

     

    Your loan balance, interest rate and loan term (definitions below) can dramatically impact the overall costs of a private student loan.

    Balance

    When you take out a student loan, your balance is the amount you borrowed. As interest adds up, your loan balance can grow. You might have several student loan balances, depending on how many loans you took out.

     

    Interest rate

    When you borrow a student loan, you agree to pay back the amount you borrowed, plus any interest that accrues. With the exception of federal subsidized loans, interest starts racking up from day one. Private student loans can come with fixed or variable interest rates. You can usually choose which rate type you prefer. Variable rates often start lower than fixed ones, but they run the risk of increasing over time.

     

    Loan term

    The term is the number of years it will take you to repay your loan. Private loans are not eligible for federal repayment plans. Most lenders will let you choose a term of five to 20 years when you borrow.

    To determine how much in private student loans you should borrow, start by considering a couple of general rules of thumb: Borrow as little as possible, and borrow only what you can realistically afford to repay once you leave school and enter the workforce.

     

    Then estimate your proper borrowing amount by doing a little homework:

    QuestionTo find the answer...
    How much would I have to borrow?Estimate higher education costs using tools like the College Scorecard (or your financial aid award letter, if you have one)
    How much would it cost to borrow?Plug potential borrowing scenarios into student loan calculators
    Can I afford to borrow that much?Utilize free resources like the Bureau of Labor Statistics to project your postgraduate wages

    After applying for a private student loan, you should receive a formal approval or denial within a matter of days, sometimes hours, depending on the lender. More likely, a customer service representative from your potential lender will follow up with you after you file the application to provide a status update or request additional documentation.

    • If your application is rejected, the lender may describe ways you can improve your chances, perhaps by including a cosigner.
    • If your application is approved, the lender will share forms that will need to be completed, and it will contact your school to certify the loan amount.

    If time is of the essence — perhaps your next semester or academic term is fast approaching — consult the preferred lenders on your list about how quickly you can expect an answer on your application. You might also consider so-called emergency student loans.

    Financial aid disbursement is black and white for federal grants and loans but, in the case of private student loans, is more unique to each lender. Generally, a private student loan is sent to your school and applied directly toward your outstanding tuition and fees. Any unused student loan money is typically then diverted to you, via check or online deposit.

     

    To understand how this process will work with your particular school and lender, ask ahead of time. Your school’s financial aid office, for example, may have its own way of redirecting leftover loan funds. Your lender might also disburse your loans in one lump sum or divide it into installments spread over each semester or academic term.

    The world of student loans can be confusing to navigate, and doing it alone is darn near impossible.

    Fortunately, there are many ways to get help without paying for it.

    • Talk to your high school’s guidance counselor
    • Seek out community assistance offered by your library, bank or other organization
    • Take advantage of on-campus college resources like your financial aid office
    • Find professional help in the form of nonprofit credit counseling
    • Contact federal loan servicers and the Education Department’s ombudsman via StudentAid.gov
    • Reach out to private student loan companies about their products and services

    Also consult free online resources like LendingTree, where you can get your questions answered via blog content or make the math of borrowing simpler using our suite of calculators. For now, these guides might be most useful: